This is one of IBM’s worst-performing segments. Revenue declined 10% last quarter, as hardware revenue fell 10% year over year.

In response, IBM has made divestments across its legacy portfolio over the past several years.

Some of IBM’s divestitures include System X, its customer care business, and its semiconductor manufacturing segment.

IBM is also suffering from the strong U.S. dollar. With a huge presence in the international markets, IBM is exposed to currency risk.

Last quarter, currency exchange reduced revenue by 1.4%.

A weaker dollar going forward would be a tailwind for IBM’s revenue.

However, underneath the revenue declines, IBM’s turnaround is gaining momentum.

Growth Prospects

IBM’s restructuring is making the company leaner, and more efficient.

The company noted in last year’s annual report that its divestments have trimmed $8 billion off the top line, but nothing off the bottom line.

In other words, IBM is shedding commoditized businesses, that were barely profitable. In exchange, it is investing aggressively in its “strategic imperatives”. IBM uses the term to describe its growth businesses, which include the cloud, data, and security.

As IBM sheds its low-margin commoditized business segments, the strategic imperatives are gradually becoming a bigger piece of the overall company.

In the past four reported quarters, IBM has generated $34 billion of strategic imperative revenue, which now represents 43% of total revenue. Strategic imperative revenue is up 12% in the past year.

The benefit of this strategy over the long-term, is that IBM can focus on profitable growth. While the various divestments have caused overall revenue to decline, earnings and free cash flow are improving.